Sun and IBM - What price Bigger Indigo?
The server world goes mad
Comment Innovation loves a crisis, Sun boss Jonathan Schwartz likes to say. But perhaps not so much as your competitors love your particular crisis. Witness the way IBM has quietly but gleefully watched Sun's power and fortunes wane in the aftermath of the dot.com bust.
Every one of those wisecracks by Scott McNealy and Ed Zander a decade ago about "the world versus IBM Global Services" may come back to haunt Sun's founders and employees if the rumored takeover deal of Sun by Big Blue does indeed come to pass.
As of the market close on Wednesday, no deal had been announced. But we hadn't seen a firm denial from Sun or IBM either. That, plus reports confirming the original report in the Wall Street Journal coming out of the Associated Press, Reuters, and the Financial Times, would seem to indicate that Sun and IBM are indeed talking about some sort of takeover deal. If a deal is in the works, the companies should make an announcement before the market opens on Thursday, and if the rumor is not true, then someone should go to jail for pumping up Sun's stock by 79 per cent to $8.89 per share.
That IBM would shell out nearly $8bn to buy Sun is stunning to people who have been in the computer business for a while. Not just because that is the largest acquisition that IBM will have ever done in its history, not just because Sun can be acquired for such a small amount of cash, but because it seems so unnatural.
Sun and IBM are allergic to each other. IBM is the button-down Puritan from the East coast (no matter how hard is has tried to loosen up, it is still as stiff as a new wingtip). Sun is the young, wisecracking hipster from the West coast (well, formerly wisecracking until it was crushed by the dot.com bust). If this were a Hollywood love story, there would have been a chance meeting and lots of high jinx, and then a romance would have ensued. But in real life, when you marry someone not suited to you, one of you ends up with the goldmine and the other one gets the shaft.
For amusement sake, let's assume the rumors are true and that Sun has shopped itself around to Hewlett-Packard (which apparently rebuffed Sun's advances) and to Fujitsu (which apparently can't come up with the cash). Maybe other companies have been approached by Sun for a potential acquisition too.
Let's even assume, for the sake of a good story, that the entry of Cisco Systems into the server racket on Monday provided the impetus to put some fire into Sun's eyes. Perhaps the rapidly decelerating server market, Sun's financial results for the quarter ending in March, and IBM's bragging that it is Mister Moneybags in 2009, despite the down economy, have compelled Sun to gussy itself up a bit and place a call to Armonk, New York.
Personally, I find this image repugnant in so many different ways.
I happen to think the systems market needs more, not fewer, vendors, and the market needs different kinds of boxes, both virtual and physical. But you would expect a systems editor to say that, now wouldn't you? And as for doing what is necessary, I also know what that is like too. I shut down a big chunk of my IT Jungle site and came to work at a competitor because I could not match the scale of The Register.
You fight as long as you can, but you have to take your opportunities when they present themselves. You have to deal with what is, not with what you wished, and you can't look back. Maybe Schwartz is having that kind of moment.
So how might Sun and IBM fit together? Well, first and foremost, IBM always thinks of recurring revenue streams and steady customer bases. Sun has never broken out its Solaris business (licenses plus support) as a separate line of business, but this is the jewel of the company, every bit as much as the z/OS and related middleware stack on IBM mainframes are for Big Blue.
It is basically free money, so long as customers can't easily move their applications. Sun's strong presence in the financial services and telecommunications industries is also something that IBM has craved. So that is worth something too, if those customers want to stick with IBM/Sun.
@Can we drop the flame war for a minute
Agree with AC about dropping the flame war - is much better for all of us - i'm tired of seeing people, especially Jonathan Schwartz, being abused with very personal and unfair comments
There is no arguing with outright prejudice and its surely time for some people in our industry to learn to grow up even if just a tiny bit please?
IT execs and all of us in IT, either as suppliers or customers, are often doing the very best we can in challenging circumstances and backgrounds.
It appears to get just a little more challenging each year, and if anything the only constant in IT is accelerating change, and all this in a very fast, sometimes hard, and rapidly changing industry that compared with the financial services industry right now, has so very much to feel and that we should be proud about
There is fantastic IT success all around us The Register being a prime example, over the years getting a better and better
. . . yes for sure some spectacular failures also with some vendors and IT projects . . .
Why is it always the large scale government ones? Its got to be greed surely and not incompetence?
Does anyone agree that the pace of change and volumen of information definitely appears to have picked up substantially in the last several years and months?
It is a very successful smart industry and some of the biggest cash surplusses are held by the IT industry from Cisco on down and they should be put to good and safe use for the benefit of all with more IT initiatives and projects for more jobs
We all face a Golden Future in IT !
IT is the lead industry in terms of setting strategy, marketing, sales, operations, services and increasingly sensible core finance as well
Back to An IMAGINED IBM SUN DEAL :
Am personally for a merged acquisition especially if jobs can be reallocated and preserved - of course this is the hard part than requires much vision hard work and finesse -
- IBM have been challenged in the past they COULD bring success here
Downside is how do you preserve, if you can, Sun's innovative culture and high R&D spend to keep the ideas and practical realisations flowing?
It could be one of three S's driving the deal or another outside factor -
SAM 1. SE Asset Management own a chunck and may prefer an industry buyout if this can be achieved to realise the full value of their considerable investment and of course there are several other large scale institutional investers with substantial slabs of Sun
SAM 2. Sam Palmisano and his executive and strategic schemes - to what extent is it safe for them to do this right now when during the last quarter's analyst calls score of firms said that visibility beyond current quarter was unclear. There is a clearer year to year and sequential quarter to quarter trend right now of course and no one can call the inflection point for growth again yet.
SUN Board itself with or without institutional investor backing
Out of the Blue; Cisco, HP?, Dell?, even Microsoft one of the other top 50 IT vendors
Also key, is IBM persuaded itself that they really want to do the deal, they are doing fine without, but it could be a massive lost opportunity to let this one go.
The strategic opportunities on this if you really think about it are boundless
IBM could regain a lead in Enterprise Storage with this deal - its also rumoured that they hired the ex-EMC Symmetrix designer, a new high end enterprise storage offering truly worthy of the Z mainframe could be most interesting pitched against Hitachi's Excellent USP V and newly revamped AMS and EMC's market leading DMX and CX and HP's EVA
Couple this with Sun's modular open storage and best of IBM and Sun enterprise tape and this would really Rock.
Plus of course a blending of IBM and Suns growing influence and innovation in Tier 0 Solid State Disk
No comment on this deal too long could prove to be a bit damaging to IBM and SUN both
Leave the deal and some Sun customers will defect anyway and this appears to be happening already
High end customers cannot build resilient long term infrastructures with solutions from weak vendors and Sun unfortunately due to business volatility and uncertain economic environment and less than optimal strategies and sales execution plus ongoing speculation about their future has been very unfortunately weakend
IBM could do a lot with Sun's education sector lead and public sector involvement as part of its smart infrastruction for better decision making initiatives and drives
IBM are good at strategic considerations and can change on a dime if and when they have to - witness the success of Global Services
As above Deal Drivers - could be . . .
SAM 1 South E Asset Management - backed with other large insitutional shareholders or a lead by one of the others
SAM 2. Sam Palmisano and his strategic executive teams
SUN. Realisation by Sun board with the new directors that the best interests of Sun are served by a trade sale
A trade sale in the current environment is going to be difficult but not impossible and this is a very interesting deal unlike any before in scope and scale - if got right it represents a sea-change and seismic shift in enterprise IT and innovation
"Indigo" would have a powerful set of parts and capabilities to make interesting jigsaw solutions, clouds and pictures to help customers from backend always available core IT all the way forward via public and private clouds and the partner ecoscope to customers screens and device screens
If the solutions delight and exceed customer expectations and meet the needs and untapped wants of the existing IBM and Sun customer base, and can attract new business from outright new busienss and the competition then the right profitable growth numbers will follow
Profit is not a dirty word. The IT industry needs increasing profits but not profiteering.
Outright greed and politicking for personal gain and someone else's loss in not good though.
Witness the banking and finance industries
Sun has tried profiteering at an extreme - look at some of the margins and reckless quarterly 7% margin increases in some big customer bases in the past - especially before the qualification of Fujitsu's Solaris offerings as being fit for purpose in the enterpise space on the dual vendor ticket that finally broke the Sun monopoly even to just a duoploy in the Solaris infrastructure business
And I should know!
Astonishingly, at the other extreme Sun just have let so many things go for FREE and in my view , this was unnecessary also
There is a happy medium and mix. Healthy profits and healthy, happy great value customer deals.
Still as of today no official word from either side though
Brass Balls . . . Or,
All just a rumour? Due diligence behind the scenes? Who knows?
Sun's problems have not been technology, its not always their people, its very unoptimal execution on sales strategy backed with unoptimal marketing campaigns.
The Customer really didn't come First. Nor sometimes and regrettably the staff but i feel the intention was always there
Sun worship a bit too much at the altar of technology !
People, Products and Services and then Profits
Not just techology as lead
By the way when Scott McNealy was a the CEO helm I admired the fact that he did his utmost to avoid layoffs, and the employee stock plan he promoted benefitted many families
Sun is rich in very highly innovative IP of industry wide current and future significance
They are a bit like an enterprise Apple
Free open source and the share campaigns are very good and helpful to both the industry and customer base.
The strategy and execution of the pull through of higher value skilled solutions and service wrap have been less than optimal plus less than optimum
We're back to sales and marketing execution and insights
Its going to be interesting to see if there is a deal, and if and when it goes through, who and how, and what the next few days, weeks, months and years hold for Sun
I wish Sun and IBM well if they are talking
If they pull this one off, I see a Golden Future ahead for both !
re:Can we drop the flame war for a minute
"What about RedHat buying sun for their technology? "
You forget that Sun makes more money from software than RedHat. RedHat could not possibly afford Sun as their Market Cap is only 3B right now... Sun could buy RedHat though. Wouldn't that be a funny change of events.
I'm just blurting now...
Can we drop the flame war for a minute
Let's cut the geeky flame wars and try and agree on some facts. IBM have a ton more money than Sun, and have ridden the Linux wave pretty well in the large accounts where they make their real money. Sun missed the boat and despite some astonishing innovation in their SPARC/Solaris heartland have not been able to catch up and convince people to stay with them instead of defecting to one of the other vendors.
Those are the facts. Now the opinion.
If you are IBM, what's in it for you? You might acquire Sun to get their customers, or their current or future technology/IP, or their people.
"Sun's customers", I think is not sufficient reason to pony up $6bn. Telcos and academics for example, both famously loyal Sun groups, can be picked up for free simply by waiting for Sun to die. (Academics can also be 'bribed' more cheaply: $1m worth of Linux blade servers to a college buys you an awful lot of goodwill.)
"Their people". Sun have some really, really good people...plus some idiots. I think IBM could pick up the Cantrells and Goslings for much less than $6bn. Bechtolsheim might be more expensive...but he would probably not jump anyway. But he might not say no to a few mill in seed money for his next startup. Cisco do this all the time; they fund a bunch of Cisco execs to leave the mother ship, build a startup and then buy it back.
"Their innovation". Very hard to put a price on this one. It is Sun's crowning achievement that they continue to innovate through thick and thin. Are DTrace and ZFS worth $6bn? They're certainly stellar technology. But $6bn? No. Unless, that is, the patents for them are so broadly granted that they would permit IBM to go after netapp, emc, hitachi and so on. I really don't think IBM would risk a patent war like that.
Conclusion? IBM should not buy Sun. If there are things in Sun that they want, they should destroy Sun in the marketplace and then pick up what they want for a song.
Food for thought #2: What about RedHat buying sun for their technology? Buy the business, sell the galaxy line to Dell, and put zfs and dtrace wholeheartedly into linux. That would be interesting indeed.